All eyes on this week's auction as market factors weighed

All
eyes will be on this week's GlobalDairyTrade auction and
upcoming auctions will play a major part in determining
Fonterra's final payout.

Last week, the dairy giant slashed its milk price forecast
for the 2014-15 season from $7 to $6.

International dairy prices have continued to fall sharply
since Fonterra announced its $7 opening forecast in May.

GDT auction prices have tumbled 35% since early February,
while the New Zealand dollar has remained stubbornly high.

ASB chief economist Nick Tuffley said it was important to
retain some context, with the milk price heading to the
modest levels recorded in 2011-12 and 2012-13.

The price for these three years highlighted ''just how
exceptional'' last season's price of $8.40 was.

In Westpac's weekly commentary, economists expected a further
small decline in auction prices over the short term, followed
by a period of stability and then a very sharp rebound in
prices towards the end of the year.

Nick Tuffley.

While there was ''no doubt'' Chinese households remained
under a cloud, an apparent recovery in heavy industry in China
was expected to percolate through to households by the end of
the year.

There was also the usual seasonal lift in Chinese dairy
imports, the natural conclusion of the inventory cycle that
was taking place among milk wholesalers in China at present,
and the possibility of subdued growth in New Zealand
production farmers' volumes.

Farmers would have less incentive to boost production by
buying in extra feed this year, the report said.

However, it pointed out that people should avoid getting
''too caught up in the downbeat export story''.

There were early signs of stabilisation in log export prices,
after very sharp declines earlier this year.

Meat prices were going from strength to strength and could
still head higher still, amid very tight global supply
conditions.

The ANZ commodity price index recorded a fifth successive
monthly decline in July, led by whole milk powder, which
slipped 12% and was now down 53% year-on-year.

The index eased 2.4% in the month to be 9.8% below the peak
measured in February.

Lower whole milk powder prices had also begun to weigh on the
rest of the dairy complex.

Butter was down 6.8%, cheese and skim milk powder both down
2.9% and casein down 2%.

Beef prices posted an 11.3% increase, driven by a shortage of
domestic manufacturing beef in the United States during its
peak demand period.